USA Accounting for inventory sold directly from supplier

[rkgozar]

We occasionally sell large items that ship directly from the supplier to the customer. I'm thinking that transaction should not affect our inventory asset account -- am I right? If so, what is the GAAP for handling this transaction?

 

[Steve-LevelUp]

It would depend on your shipping rules. Does the product become the buyers the moment it ships or the moment it arrives?

In either case, the entries would be the same regardless of how it is sold, it would just be an increase to inventory followed by a decrease to inventory.

If it was the customers the day it shipped, then your inventory debit and credit would be on the same day.

If you want to wait for the delivery to arrive at the customers, then the inventory debit and credit would be a few days off.

However, in both cases, the entries would still run through your inventory account. Although for practical purposes, you would never have this inventory, for historical analysis purposes and refunds, it would be better to keep these transactions flowing through the inventory account.

 

[rkgozar]

Thanks for your insights, Steve. I'll follow your advice.

Originally, I was thinking of crediting some sort of "uninvoiced inventory" liability account and debiting COGS for the sale - then when paying the supplier invoice debiting "uninvoiced inventory" and crediting "cash". But posting to inventory for historical analysis and refunds makes sense.